Federal Reserve Board Chairman Alan Greenspan solidly endorses Rep. Jim Leach's legislation to repeal the Glass-Steagall Act and roll back a number of banking regulations.
In a May 10 letter, Mr. Greenspan did not address some of the controversial insurance provisions that have generated opposition to the House Banking Committee chairman's bill. But the Fed chief did support common ownership of banks and insurance companies. While many bankers back the overall bill, they oppose limits on the Comptroller of the Currency's power to grant new insurance powers.
The Iowa Republican has revised his bill several times, trying to draw support from insurance agents and bankers. The agents have grudgingly agreed, but the banking industry remains opposed.
The text of Mr. Greenspan's letter to Rep. Leach follows:
You have requested my views on HR 2520, the Glass-Steagall reform and regulatory relief bill, and the revisions that will be made to that bill.
These revisions will broaden greatly the activities that may be conducted within the new financial services holding company. The current legal bar on affiliation of banks and insurance companies will be rolled back. Insured banks will also be permitted to affiliate with an uninsured wholesale financial institution.
A financial services holding company may retain the insurance affiliate of a securities company that it acquires, and an insurance company that affiliates with an uninsured bank may continue to make investments as permitted under applicable state insurance laws.
I believe that the revised proposal encompasses financial services reform that is urgently needed and that the industry and the board have been seeking for more than a decade.
This reform will strengthen the financial services and banking industries, is necessary to ensure that the U.S. financial markets remain the most competitive, efficient, and innovative in the world, and will allow U.S. consumers to obtain the benefits of a wider range of products and services at more efficient prices.
Importantly, the bill authorizes these new powers in a structural framework that avoids subsidizing these powers with a taxpayer guarantee and giving a competitive advantage based on that subsidy.
I strongly support this effort and urge Congress promptly to move forward with this essential legislation.